Most 401(k) investors are investing and saving for long-term future goals, most commonly funding retirement that may last 30 – 40 years. Last quarter, we shared that investment decisions are driven by your risk tolerance (your willingness to take investment risk) and risk capacity (your ability to take investment risk). An important aspect of your risk capacity is your investment horizon, which refers to the length of time and extent to which you anticipate making withdrawals from the portfolio.
This year has brought us a world-wide pandemic, an ensuing recession, political unrest and natural disasters, all of which create uncertainty and stock market volatility. While volatility in the stock market may be putting your risk tolerance to the test, your investment horizon probably has not changed based on current market conditions. If your long-term goals haven’t changed, neither should your long-term plans, even during volatile times like we are experiencing right now.